BlackRock acquires FutureAdvisor to expand into digital advisory service

BlackRock, world’s largest funds management giant has announced its acquisition of FutureAdvisor, a financial advisory service that helps its clients manage investments with algorithm rather than professionals. The financial terms of the deal has not been revealed.

Founded in 2010 by two ex-employees of Microsoft, FutureAdvisor is pioneer in building and managing investment portfolios with the automated computer. It is a new genre tech companies that provides asset management advice to clients who cannot afford to pay brokers or do not prefer to hire a broker. developed at the Y Combinator start-up program in SFO, the startup has secured $15.5 million in the recent funding and is said to be valued at $75 million.

Rob Goldstein, head of BlackRock’s technology service division said, “Being a financial services company or more importantly an asset management firm, actually requires that deep down you also think of yourself as a technology company. Over the next several years, no matter what you think about digital advice, you would be hard pressed to argue that it won’t be more popular versus less popular five to ten years from now.”

As part of the acquisition agreement that values FutureAdvisor between $150m and $200m, the company will merge with BlackRock Solutions and be branded as FutureAdvisor Powered by BlackRock Solutions.It would continue to offer services to the existing customer as well as the new one. Rather than targeting the individual investors like its competitors, it plans to use the robo-advisor services to allow banks, brokerage firms, insurers and 401(k) to use the digital platform to offer services to affluent investors and millennials, said Frank Porcelli, head of BlackRock’s US Wealth advisory unit.

Porcelli said, “I have two 20-something boys and I don’t know, in an age of texts and chat, that they are going to sit down with a financial adviser. They might prefer digital advice. So where the advice market goes, BlackRock wants to be there, and one thing we know is that five and 10 years from now, there will be more people using digital advice platforms than do today.”

The company promises that the robo-advisor would remain a ‘open architecture’ which means it would recommend other funds too apart from the BlackRock funds. The deal is expected to be closed by the fourth quarter and financial impact of the transaction would not make any changes to the firm’s earning per share.

BlackRock which manages more than $4.7 trillion worth assets, has been largely focusing on technology recently. It has recently hired a data scientist from Google and plans to grow its ‘Big Data’ team.